28 July 2020

Scottish appeal court agrees that unenforceable parts of an adjudicator’s decision can be ‘severed off’

It’s well understood that adjudication is a quick way of resolving construction disputes, on an interim basis at least (albeit the adjudicator’s decision is usually the ‘final word’). In the period since statutory adjudication for construction disputes was introduced in 1998 the courts have been at pains to give effect to adjudicators’ decisions. In general terms, the only situations where the court will not enforce the decision is where the adjudicator breaches natural justice or acts beyond the limits of his/her jurisdiction.
 
That being the case, where a claimant is successful at adjudication, it is standard practice for the losing party to trawl the decision looking for potential breaches of natural justice or, more likely, instances of the adjudicator going beyond the limits of their jurisdiction, in the hope that a court will agree and refuse to enforce the decision.

That approach:

• is due to the courts having said that a construction dispute might contain various elements (such as a claim extension of time and payment for variations and/or loss and expense) and that if the actions of the adjudicator taint any one element, then the entire decision is unenforceable; and
• has led to much criticism where it means the adjudicator’s error on one ‘bad’ element of a dispute, comprised of multiple elements, is not severed off – meaning that the ‘good’ elements of the decision fall away too with the ‘bad’ elements…all to the benefit of the defending party in the adjudication who argues the decision is unenforceable.

However, the position in Scotland has taken a significant turn in favour of claiming parties at adjudication in light of the recent Inner House decision in Dickie & Moore Limited -v- The Lauren McLeish Discretionary Trust.
 
This was an appeal from the decision of Lord Doherty in November of last year where he held that the dispute in respect of which the adjudicator had jurisdiction, and the dispute in respect of which he did not, were separate disputes, meaning that where an adjudicator’s decision was partly within and partly outwith jurisdiction, the part within jurisdiction could still be binding (i.e. the ‘bad’ element could be severed off).
 
Lord Doherty also said that in determining whether part of the decision could be severed off, the critical question ought not to be whether there was a single dispute but whether it was clear that there was a core nucleus of the decision that could safely be enforced (having not been tainted by the decision and reasoning on the unenforceable elements).
 
On appeal, the Inner House has given Lord Doherty’s approach a ringing endorsement, saying: 

“the correct approach in our opinion is that the court should make the assumption that the parts of the decision that are invalid, for example because the dispute had not crystallized, did not exist. On that basis, it should then consider whether the remainder of the decision can be enforced without its being tainted by the invalid part of the decision.”

The appeal court did caution that a breach of natural justice may well taint the entire decision whereas acting in excess of jurisdiction might well lead to severance.
 
Nevertheless, the decision represents a very significant step forward in Scotland for parties wishing to enforce adjudicators’ decisions and it is to be welcomed for that reason alone. Adjudicator’s should also bear it in mind when writing their decisions and ensure they keep each element of the dispute separate to limit enforcement challenges and/or assist with enforcement of the decision.

For any questions you may have, please contact:

Fraser Hopkins, Partner fho@bto.co.uk / T: 0141 225 4858